VC Investor Explains Reasons Why Crypto Fell 80% in 2018

According to prominent venture capital investor Chris Burniske, the crypto market fell by nearly 80 percent in 2018 due to the lack of adoption of major digital assets.

In the past eight months, the valuation of the cryptocurrency market fell from $900 billion to $195 billion, more than 78 percent.

Cryptocurrencies like Bitcoin and Ether, the native currency of the Ethereum blockchain protocol, are valuable because investors can trade them for alternative assets and currencies, in markets with high liquidity and user activity.

Despite having seen 100-fold gains in 2017, major cryptocurrencies have failed to demonstrate significant progress in adoption and scaling.

Burniske, a partner at Placeholder VC, emphasized that the adoption of cryptocurrencies as a payment method and a medium of exchange should have increased proportionally to their market valuation, and the exponential increase in the value of digital assets has caused a negative impact on the mid-term trend of the market.

"Why is crypto falling so much in 2018? Because in 2017 the market was up > 30x, but adoption wasn't concurrently up 30x. One can try to explain each fluctuation, but these explanations are frequently stories we tell ourselves, stretching to add reason to traders driving a bear market."

In November 2017, as the price of Ether increased by 30-fold since January 2017, Ethereum co-creator Vitalik Buterin encouraged the community to re-evaluate the valuation of the market after considering the real adoption rate of cryptocurrencies, blockchain technology, decentralized applications, and financial networks.

At the time, the valuation of the cryptocurrency market was $500 billion and within 10 months, the valuation then surged to $900 billion and ultimately dropped below the $200 billion mark.

Given the lack of adoption of cryptocurrencies as alternative payment methods, Burniske stated that to understand the current trend of the market, investors must compare the price of cryptocurrencies in 2018 to that of 2017, and analyze the difference in adoption in the two periods.

Historically, the cryptocurrency market has consistently ensured patterns of bubble-crash-build-rally, and as companies focus on building the robust infrastructure to support the next resurgence, more users will accordingly be more attracted to the cryptocurrency market.